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  • U.S. Dollar Shaking Off Risk Aversion
    - The durables number was boosted quite a bit by defense spending

    - New home sales were up, but so are foreclosrures (defaults) www.bloomberg.com/apps...

    - The dollar strengthens as the velocity of money slows down (liquidity leaves the system)

    - Inflation may drive the fed to raise rates, which will strengthen the dollar but kill banks.

    - I believe the dollar was beaten down by the assumption that the Fed would continue to write blank checks. Once the FNM/FRE bailout happened, the fed's language implied that they would not bail out other institutions down the road. This gave dollar bulls clarity, considering that each bailout = weaker dollar in theory. Also, when the obligation of the Fed in regards to FNM/FRE was estimated to be 26B (and nowhere near 5T), the dollar continued to strengthen.

    - Oil is a wild card. Iran tension will push oil up, wheras deflationary pressures (lack of demand) will send it down (strengthing $).

    - Why isn't the market rallying more with such 'great' economic news today?

    - Within the last 6 weeks, 4 major institutions have issued dire warnings for the US Banking system, and the government has taken extreme measures to prevent collapse. Is more to come? The dollar bottomed this year on the day BSC went belly up, which tells me that the Dollar is also correlated to the health of the derivatives market.

    At the end of the day, there are several things that push the dollar around - including foreign monetary policy & macroeconomic events such as the amount of liquidity in the market, oil prices, and Gold. Not all of these are good things, so I wouldn't necessarily correlate dollar strength with overall economic strength.

    Jul 25 14:23 pm |Rating: 0 0 |Link to Comment |View article

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